Choosing a life insurance policy

This was originally published on Monday, June 26, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

Question: I am buying life insurance for the first time and, quite frankly, I’m confused by the different types of life insurance policies. Could you clarify the policies to help me decide?

Answer: First off, I commend you for thinking about your future and the expenses you will save your family when the time comes. Not all policies are created equally. Here are a few of the types of life insurance most companies offer.

Term life insurance: Term life insurance is typically the most affordable and simplest life insurance. It offers protection for a specific number of years. The policy is set for a limited time, usually 30 years. Premiums usually are a lot lower than other policies, making it affordable for most. The annual premium remains the same throughout the life of the policy.

Whole life insurance: Whole life insurance is permanent for the entire life of the insured as long as you make the premium payments. Unlike a term life insurance, whole life insurance has a guaranteed premium rate and guaranteed cash value accumulation, which means you pay the same every year no matter how long you have had the policy.

Your premium payments are divided among the insurance, administrative fees, death benefits and the investment or dividends that your policy incurs. Withdrawals that you make toward your policy are tax-free up to the amount of premiums you paid minus the dividends paid out and previous withdrawals. You can use the dividends and cash buildup to pay the premiums of the policy.

These policies have a higher premium payment because they are permanent and provide not just death benefits, but cash.

Universal life insurance: Universal life insurance also is known as flexible life insurance. Like the whole life insurance policy, this policy is permanent and provides cash value. The premiums, level of protection, and the cash value can be adjusted as needed. The amount of cash values can be guaranteed to earn a specific minimum. The cash value also is tax-deferred just like the whole life insurance.

Life insurance is a great way to have peace of mind that your loved ones will be protected when you pass. Just like any other insurance policy it should be reviewed annually and you should take the time to understand exactly what’s covered.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

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Three types of life insurance offer peace of mind

This was originally published on Monday, April 28, 2014, in the Pacific Daily News.  Click here to subscribe to the PDN.

Question: I am buying life insurance for the first time and, quite frankly, I’m confused by the different types of life insurance policies. Could you clarify the policies to help me decide?

Answer: First off, I commend you for thinking about your future, and the expenses you will save your family when the time comes. Not all policies are created equally; here are the types of life insurances most companies offer:

Term life insurance

Term life insurance is typically the most affordable and simplest life insurance. It offers protection for a specific number of years. The policy is set for a limited time, usually 30 years; they are sometimes referred to as “temporary” life insurance. Premiums usually are a lot lower than other policies making it affordable for most. The annual premium remains the same throughout the life of the policy.

Whole life insurance

Whole life insurance is permanent for the entire life of the insured. Unlike a term life insurance, whole life insurance has a guaranteed premium rate and guaranteed cash value accumulation, which means you pay the same every year no matter how long you have had the policy. Your premium payments are divided among the insurance, administrative fees, death benefits and the investment or dividends that your policy incurs. Withdrawals that you make towards your policy are tax-free up to the amount of premiums you paid minus the dividends paid out and previous withdrawals. You can use the dividends and cash buildup to pay the premiums of the policy. These policies have a higher premium payment because they are permanent and provide not just death benefits but cash.

Universal life insurance

Universal life insurance also is known as the flexible life insurance. Like the whole life insurance policy, this policy is permanent and provides cash value. The premiums, level of protection, and the cash value can be adjusted as needed. The amount of cash values can be guaranteed to earn a specific minimum. The cash value also is tax-deferred just like the whole life insurance.

Life insurance is a great way to have peace of mind that your loved ones will be protected when you pass. Just like any other insurance policy it should be reviewed annually and you should take the time to understand exactly what’s covered.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

Remember to review life insurance

Life changes, and our financial circumstances change along with it. To make sure that your family is protected with the proper amount of life insurance coverage year after year, and that any claims made will be processed smoothly, it’s important to periodically review and update your coverage.

Update your beneficiaries. Does your life insurance policy list the current beneficiaries in your life? You may have gotten married, had another child, or had some other similar change in your life. If you haven’t made the change already, now is the time to revise your policy.

Update contact information. If you or your beneficiaries change addresses, phone numbers, and other contact information, make sure that this information is also updated on your policy.

Keep your policy in a safe place. If your life insurance policy is sitting in a pile near your desk, now is the time to move your policy to a safe deposit box, and make a copy of the policy for your personal records. If you’ve updated your policy, make sure current records are stored in both places.

Talk to your beneficiaries about your life insurance policy. Your beneficiaries need to know that your life insurance policy exists, so that they can claim the death benefit if you pass away before the coverage period is up. If you don’t tell them, they may never discover the policy among your belongings, and use the financial protection you put in place for them. Let them know where the records are kept, and review the financial plan with them if they ever need to make a claim.

Update the amount of your coverage. If you have another child or buy a home, you will probably need additional coverage. If one of your dependents becomes financially independent, you may need less coverage. In these cases, it can help to have a list of your life insurance needs, from which you can add and subtract specific items. Review your policy with your spouse, and talk to your insurance broker or agent. You may have the option of adding coverage to your existing policy, or you may need to purchase a separate policy to bring your total life insurance coverage up to date.

Ask if your health improvements affect your premiums. Your health is a major factor in your life insurance premiums. Smokers can pay substantially more for life insurance than non-smokers, and other health conditions can affect the price of your premium. Quitting smoking can help lower the cost of your premium, but insurers often require a lengthy period of time to pass before you’re reclassified as a non-smoker. Start the clock as early as possible on your health improvements, and ask your insurer if you can revise your policy based on those improvements. You can also try shopping for a new policy based on your improved health.

Consider guaranteed level term insurance. If you renew your term life insurance every year, your premium will gradually rise as you age and develop health conditions. A guaranteed level term insurance policy gives you the same premium throughout the term you choose, such as 20 or 30 years. If you buy a guaranteed level policy when you’re young and healthy, you can continue to pay a low premium for decades.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years experience in retail banking and with financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com

Life insurance should match your needs, budget

There are many different options for life insurance, but in general there are two main categories to choose from: term life insurance and permanent life insurance. They can greatly differ in cost and in the length of time they provide coverage. You should match your life insurance as closely as possible to your needs and budget.

Term life insurance. Term life insurance is the most basic form of life insurance. You choose a specific period of time for coverage, such as 20 or 30 years, when members of your family will be financially dependent on you. If you pass away within that coverage period, your family receives a death benefit.

Premiums for term life insurance cost much less than premiums for permanent life insurance. Term life premiums can save you money and give you more buying power for life insurance coverage.

Permanent life insurance, such as whole or universal life, costs more in part because the insurance itself is combined with a savings or investment plan. However, it may be more beneficial to you to keep insurance and savings/investments separate in your financial plan.

A permanent life insurance policy’s investments may come with higher fees or lower returns than other investment options available to you, and you should always compare fees and returns in any investment decision. Insurance policies offer tax benefits for investments, but so do IRA’s and 401k’s, and retirement accounts give you much more control over your investments.

If you cancel your permanent life insurance policy, you may be faced with a surrender charge, which would decrease the cash value you receive from the policy. Instead of taking a loan from the cash value in your permanent life insurance policy, and paying interest and fees on that loan, you could put that money into a Roth IRA instead, and withdraw your contributions penalty free if you need them in an emergency.

Term life insurance doesn’t pay out a benefit if you survive beyond the policy end date, whereas a permanent life insurance policy doesn’t expire. But if no one will be financially dependent on you after your policy expires, life insurance will no longer be a need in your financial plan. If you chose to combine term life insurance and retirement account savings in lieu of permanent life insurance premiums, your designated beneficiaries will inherit your retirement account after your passing.

Permanent life insurance. If you have family members who will be financially dependent throughout your life and after your passing—such as children with disabilities—permanent life insurance, which does not expire, is something to consider.

In this situation, you should carefully consider all of the options available to you. You can buy term life insurance that is convertible to permanent life insurance down the line, so that you can save on premiums until you have room in your budget for a conversion to permanent life insurance. You can also start building assets in a special needs trust, as you would a retirement fund, and use life insurance as another component of the trust for your special needs child. Financial and legal professionals can help you compare your options and plan effectively for your family’s specific circumstances.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years experience in retail banking and with financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com.